Are Italy's public finances sustainable? The role of demographics, productivity, and labour markets
AbstractIn light of the uncertainty of the effects of population ageing on growth and fiscal variables, it is sensible to ask whether Italy's public finances can achieve sustainability under the spending pressure exerted by future demographic and macroeconomic developments. The paper addresses this question by assessing long-term fiscal sustainability, following the commonlyagreed European methodology, under alternative scenarios considering a variety of issues that may have a bearing on Italy's public finance conditions, namely, immigration, life expectancy, female labour participation, and productivity growth. Despite the different hypotheses captured by the alternative scenarios, the paper finds that projected debt-to-GDP ratios decrease over time, as long as fiscal consolidation is achieved in the near future. It also shows a one-shot debt-reduction strategy is not a credible substitute for a budgetary-adjustment strategy. The paper concludes Italy's public finances are sustainable and can deal with future spending pressures resulting from the ageing population.
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Bibliographic InfoPaper provided by Department of the Treasury, Ministry of the Economy and of Finance in its series Working Papers with number wp2008-6.
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Fiscal Sustainability; Fiscal Policy;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
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